What Has Big Tech Ever Done for Us? Part Two

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Dirk Auer, (Senior Researcher, Liege Competition & Innovation Institute; Senior Fellow, ICLE).]

Across the globe, millions of people are rapidly coming to terms with the harsh realities of life under lockdown. As governments impose ever-greater social distancing measures, many of the daily comforts we took for granted are no longer available to us. 

And yet, we can all take solace in the knowledge that our current predicament would have been far less tolerable if the COVID-19 outbreak had hit us twenty years ago. Among others, we have Big Tech firms to thank for this silver lining. 

Contrary to the claims of critics, such as Senator Josh Hawley, Big Tech has produced game-changing innovations that dramatically improve our ability to fight COVID-19. 

The previous post in this series showed that innovations produced by Big Tech provide us with critical information, allow us to maintain some level of social interactions (despite living under lockdown), and have enabled companies, universities and schools to continue functioning (albeit at a severely reduced pace).

But apart from information, social interactions, and online working (and learning); what has Big Tech ever done for us?

One of the most underappreciated ways in which technology (mostly pioneered by Big Tech firms) is helping the world deal with COVID-19 has been a rapid shift towards contactless economic transactions. Not only are consumers turning towards digital goods to fill their spare time, but physical goods (most notably food) are increasingly being exchanged without any direct contact.

These ongoing changes would be impossible without the innovations and infrastructure that have emerged from tech and telecommunications companies over the last couple of decades. 

Of course, the overall picture is still bleak. The shift to contactless transactions has only slightly softened the tremendous blow suffered by the retail and restaurant industries – some predictions suggest their overall revenue could fall by at least 50% in the second quarter of 2020. Nevertheless, as explained below, this situation would likely be significantly worse without the many innovations produced by Big Tech companies. For that we would be thankful.

1. Food and other goods

For a start, the COVID-19 outbreak (and government measures to combat it) has caused many brick & mortar stores and restaurants to shut down. These closures would have been far harder to implement before the advent of online retail and food delivery platforms.

At the time of writing, e-commerce websites already appear to have witnessed a 20-30% increase in sales (other sources report 52% increase, compared to the same time last year). This increase will likely continue in the coming months.

The Amazon Retail platform has been at the forefront of this online shift.

• Having witnessed a surge in online shopping, Amazon announced that it would be hiring 100.000 distribution workers to cope with the increased demand. Amazon’s staff have also been asked to work overtime in order to meet increased demand (in exchange, Amazon has doubled their pay for overtime hours).
• To attract these new hires and ensure that existing ones continue working, Amazon simultaneously announced that it would be increasing wages in virus-hit countries (from $15 to $17, in the US) .
• Amazon also stopped accepting “non-essential” goods in its warehouses, in order to prioritize the sale of household essentials and medical goods that are in high demand.
• Finally, in Italy, Amazon decided not to stop its operations, despite some employees testing positive for COVID-19. Controversial as this move may be, Amazon’s private interests are aligned with those of society – maintaining the supply of essential goods is now more important than ever. 

And it is not just Amazon that is seeking to fill the breach left temporarily by brick & mortar retail. Other retailers are also stepping up efforts to distribute their goods online.

• The apps of traditional retail chains have witnessed record daily downloads (thus relying on the smartphone platforms pioneered by Google and Apple).
•  Walmart has become the go-to choice for online food purchases:

(Source: Bloomberg)

• The retailer also announced that it would cut store hours – likely hoping that its consumers will shift their purchases online. Walmart also plans to hire 150.000 workers in its warehouses and pay out bonuses to its employees, in order to meet increased demand. 
• Instacart announced that it was seeking to hire an additional 300.000 workers to meet increased demand.
• Given the drastically lower activity within their brick & mortar stores, Walmart and Target, among others, have announced they would make their parking lots available for drive-thru testing. 
• And many other retailers have decided to close their stores and switch towards online purchasing.

The shift to online shopping mimics what occurred in China, during its own COVID-19 lockdown. 

• According to an article published in HBR, e-commerce penetration reached 36.6% of retail sales in China (compared to 29.7% in 2019). The same article explains how Alibaba’s technology is enabling traditional retailers to better manage their supply chains, ultimately helping them to sell their goods online.
• A study by Nielsen ratings found that 67% of retailers would expand online channels. 
• One large retailer shut many of its physical stores and redeployed many of its employees to serve as online influencers on WeChat, thus attempting to boost online sales.
• Spurred by compassion and/or a desire to boost its brand abroad, Alibaba and its founder, Jack Ma, have made large efforts to provide critical medical supplies (notably tests kits and surgical masks) to COVID-hit countries such as the US and Belgium.

And it is not just retail that is adapting to the outbreak. Many restaurants are trying to stay afloat by shifting from in-house dining to deliveries. These attempts have been made possible by the emergence of food delivery platforms, such as UberEats and Deliveroo. 

These platforms have taken several steps to facilitate food deliveries during the outbreak.

• UberEats announced that it would be waiving delivery fees for independent restaurants.
• Both UberEats and Deliveroo have put in place systems for deliveries to take place without direct physical contact. While not entirely risk-free, meal delivery can provide welcome relief to people experiencing stressful lockdown conditions.

Similarly, the shares of Blue Apron – an online meal-kit delivery service – have surged more than 600% since the start of the outbreak.

In short, COVID-19 has caused a drastic shift towards contactless retail and food delivery services. It is an open question how much of this shift would have been possible without the pioneering business model innovations brought about by Amazon and its online retail platform, as well as modern food delivery platforms, such as UberEats and Deliveroo. At the very least, it seems unlikely that it would have happened as fast.

The entertainment industry is another area where increasing digitization has made lockdowns more bearable. The reason is obvious: locked-down consumers still require some form of amusement. With physical supply chains under tremendous strain, and social gatherings no longer an option, digital media has thus become the default choice for many.

Data published by Verizon shows a sharp increase (in the week running from March 9 to March 16) in the consumption of digital entertainment, especially gaming:

This echoes other sources, which also report that the use of traditional streaming platforms has surged in areas hit by COVID-19.

• Netflix subscriptions are said to be spiking in locked-down communities. During the first week of March, Netflix installations increased by 77% in Italy and 33% in Spain, compared to the February average. Netflix app downloads increased by 33% in Hong kong and South Korea. The Amazon Prime app saw a similar increase.
• YouTube has also witnessed a surge in usage. 
• Live streaming (on platforms such as Periscope, Twitch, YouTube, Facebook, Instagram, etc) has also increased in popularity. It is notably being used for everything from concerts and comedy clubs to religious services, and even zoo visits.
• Disney Plus has also been highly popular. According to one source, half of US homes with children under the age of 10 purchased a Disney Plus subscription. This trend is expected to continue during the COVID-19 outbreak. Disney even released Frozen II three months ahead of schedule in order to boost new subscriptions.
• Hollywood studios have started releasing some of their lower-profile titles directly on streaming services.

Traffic has also increased significantly on popular gaming platforms.

• According to the CEO of Verizon, gaming hours have gone up 75% since the start of COVID-19 lockdows, in early March.
• Steam, one of the most popular gaming platforms, reached a record 20M concurrent users on March 15.
• Fortnite is also experiencing increased usage. In Italy, of example, game time is said to have increased by 70% since the beginning of the outbreak.
• EA’s  Call of Duty: Warzone achieved a record 15 million downloads in the first three days following its release. Its release likely led to the biggest peak in network usage, in the UK, since the start of the COVID-19 outbreak.
• And Tencent declared that the company’s gaming arm would help it to weather the coronavirus storm.
• Live-streaming of video games – on platforms such as Twitch – has also increased significantly.

These are just a tiny sample of the many ways in which digital entertainment is filling the void left by social gatherings. It is thus central to the lives of people under lockdown.

2. Cashless payments

But all of the services that are listed above rely on cashless payments – be it to limit the risk or contagion or because these transactions take place remotely. Fintech innovations have thus turned out to be one of the foundations that make social distancing policies viable. 

This is particularly evident in the food industry. 

• Food delivery platforms, like UberEats and Deliveroo, already relied on mobile payments.
• Costa coffee (a UK equivalent to starbucks) went cashless in an attempt to limit the spread of COVID-19.
• Domino’s Pizza, among other franchises, announced that it would move to contactless deliveries.
• President Donald Trump is said to have discussed plans to keep drive-thru restaurants open during the outbreak. This would also certainly imply exclusively digital payments.
• And although doubts remain concerning the extent to which the SARS-CoV-2 virus may, or may not, be transmitted via banknotes and coins, many other businesses have preemptively ceased to accept cash payments. 

As the Jodie Kelley – the CEO of the Electronic Transactions Association – put it, in a CNBC interview:

Contactless payments have come up as a new option for consumers who are much more conscious of what they touch. 

This increased demand for cashless payments has been a blessing for Fintech firms. 

• Though it is too early to gage the magnitude of this shift, early signs – notably from China – suggest that mobile payments have become more common during the outbreak.
• In China, Alipay announced that it expected to radically expand its services to new sectors – restaurants, cinema bookings, real estate purchases – in an attempt to compete with WeChat.
• PayPal has also witnessed an uptick in transactions, though this growth might ultimately be weighed-down by declining economic activity.
• In the past, Facebook had revealed plans to offer mobile payments across its platforms – Facebook, WhatsApp, Instagram & Libra. Those plans may not have been politically viable at the time. The COVID-19 could conceivably change this.

In short, the COVID-19 outbreak has increased our reliance on digital payments, as these can both take place remotely and, potentially, limit contamination via banknotes. None of this would have been possible twenty years ago when industry pioneers, such as PayPal, were in their infancy. 

3. High speed internet access

Similarly, it goes without saying that none of the above would be possible without the tremendous investments that have been made in broadband infrastructure, most notably by internet service providers. Though these companies have often faced strong criticism from the public, they provide the backbone upon which outbreak-stricken economies can function.

By causing so many activities to move online, the COVID-19 outbreak has put broadband networks to the test. So for, broadband infrastructure around the world has been up to the task. This is partly because the spike in usage has occurred in daytime hours (where network’s capacity is less straine), but also because ISPs traditionally rely on a number of tools to limit peak-time usage.

The biggest increases in usage seem to have occurred in daytime hours. As data from OpenVault illustrates:

According to BT, one of the UK’s largest telecoms operators, daytime internet usage is up by 50%, but peaks are still well within record levels (and other UK operators have made similar claims):

Anecdotal data also suggests that, so far, fixed internet providers have not significantly struggled to handle this increased traffic (the same goes for Content Delivery Networks). Not only were these networks already designed to withstand high peaks in demand, but ISPs have, such as Verizon, increased their  capacity to avoid potential issues.

For instance, internet speed tests performed using Ookla suggest that average download speeds only marginally decreased, it at all, in locked-down regions, compared to previous levels:

However, the same data suggests that mobile networks have faced slightly larger decreases in performance, though these do not appear to be severe. For instance, contrary to contemporaneous reports, a mobile network outage that occurred in the UK is unlikely to have been caused by a COVID-related surge. 

The robustness exhibited by broadband networks is notably due to long-running efforts by ISPs (spurred by competition) to improve download speeds and latency. As one article put it:

For now, cable operators’ and telco providers’ networks are seemingly withstanding the increased demands, which is largely due to the upgrades that they’ve done over the past 10 or so years using technologies such as DOCSIS 3.1 or PON.

Pushed in part by Google Fiber’s launch back in 2012, the large cable operators and telcos, such as AT&T, Verizon, Comcast and Charter Communications, have spent years upgrading their networks to 1-Gig speeds. Prior to those upgrades, cable operators in particular struggled with faster upload speeds, and the slowdown of broadband services during peak usage times, such as after school and in the evenings, as neighborhood nodes became overwhelmed.

This is not without policy ramifications.

For a start, these developments might vindicate antitrust enforcers that allowed mergers that led to higher investments, sometimes at the expense of slight reductions in price competition. This is notably the case for so-called 4 to 3 mergers in the wireless telecommunications industry. As an in-depth literature review by ICLE scholars concludes:

Studies of investment also found that markets with three facilities-based operators had significantly higher levels of investment by individual firms.

Similarly, the COVID-19 outbreak has also cast further doubts over the appropriateness of net neutrality regulations. Indeed, an important criticism of such regulations is that they prevent ISPs from using the price mechanism to manage congestion. 

It is these fears of congestion, likely unfounded (see above), that led the European Union to urge streaming companies to voluntarily reduce the quality of their products. To date, Netflix, Youtube, Amazon Prime, Apple, Facebook and Disney have complied with the EU’s request. 

This may seem like a trivial problem, but it was totally avoidable. As a result of net neutrality regulation, European authorities and content providers have been forced into an awkward position (likely unfounded) that unnecessarily penalizes those consumers and ISPs who do not face congestion issues (conversely, it lets failing ISPs off the hook and disincentivizes further investments on their part). This is all the more unfortunate that, as argued above, streaming services are essential to locked-down consumers. 

Critics may retort that small quality decreases hardly have any impact on consumers. But, if this is indeed the case, then content providers were using up unnecessary amounts of bandwidth before the COVID-19 outbreak (something that is less likely to occur without net neutrality obligations). And if not, then European consumers have indeed been deprived of something they valued. The shoe is thus on the other foot.

These normative considerations aside, the big point is that we can all be thankful to live in an era of high-speed internet.

 4. Concluding remarks 

Big Tech is rapidly emerging as one of the heroes of the COVID-19 crisis. Companies that were once on the receiving end of daily reproaches – by the press, enforcers, and scholars alike – are gaining renewed appreciation from the public. Times have changed since the early days of these companies – where consumers marvelled at the endless possibilities that their technologies offered. Today we are coming to realize how essential tech companies have become to our daily lives, and how they make society more resilient in the face of fat-tailed events, like pandemics.

The move to a contactless, digital, economy is a critical part of what makes contemporary societies better-equipped to deal with COVID-19. As this post has argued, online delivery, digital entertainment, contactless payments and high speed internet all play a critical role. 

To think that we receive some of these services for free…

Last year, Erik Brynjolfsson, Avinash Collins and Felix Eggers published a paper in PNAS, showing that consumers were willing to pay significant sums for online goods they currently receive free of charge. One can only imagine how much larger those sums would be if that same experiment were repeated today.

Even Big Tech’s critics are willing to recognize the huge debt we owe to these companies. As Stephen Levy wrote, in an article titled “Has the Coronavirus Killed the Techlash?”:

Who knew the techlash was susceptible to a virus?

The pandemic does not make any of the complaints about the tech giants less valid. They are still drivers of surveillance capitalism who duck their fair share of taxes and abuse their power in the marketplace. We in the press must still cover them aggressively and skeptically. And we still need a reckoning that protects the privacy of citizens, levels the competitive playing field, and holds these giants to account. But the momentum for that reckoning doesn’t seem sustainable at a moment when, to prop up our diminished lives, we are desperately dependent on what they’ve built. And glad that they built it.

While it is still early to draw policy lessons from the outbreak, one thing seems clear: the COVID-19 pandemic provides yet further evidence that tech policymakers should be extremely careful not to kill the goose that laid the golden egg, by promoting regulations that may thwart innovation (or the opposite).